Cantor Fitzgerald said in a note on Monday that Yelp Inc (NYSE: YELP) has now become an easier and more likely take-out target. The deduction follows
Yelp recently converting its Class B super-voting shares into regular Class A shares late last week and the recent improvement in
the fundamentals of the company.
Conversion To Single Class
Youssef Squali, an analyst at the firm, noted that the company converted its Class A and Class B shares into a single class of
stock on a 1-for-1 basis, with the conversion automatically triggered by B shares falling below 10 percent of the total shares
outstanding. The single class shares will now have the same voting powers, preferences and other attributes as the former A
shares.
Related Link: End
Of Yelp's Dual-Class Share Structure Could Provide Catalyst For Takeout
Diluted Voting Powers
Cantor noted that the rationale for Yelp being an easy acquisition target is that the voting power is now less concentrated. The
firm noted that the top two shareholders at Yelp, namely Tybourne Capital and Vanguard, have more voting power than the company's
co-founders Max Leschin and Jeremy Stoppelman.
Potential Suitors
While noting that the local ad opportunity remains massive, Cantor said it believes the likely contenders for Yelp include
Google's parent Alphabet Inc (NASDAQ: GOOG)
(NASDAQ: GOOGL), Facebook Inc (NASDAQ:
FB), Microsoft Corporation (NASDAQ: MSFT,
Priceline Group Inc (NASDAQ: PCLN) and
Tripadvisor Inc (NASDAQ: TRIP).
However, the firm believes a deal with Microsoft may not materialize, given the long history of ill will between the companies.
That being said, Cantor believes a potential combination with any of the other companies will add significant value to the
acquirer.
Arguments In Favor Of Each Speculated Acquirer
Facebook
- Benefit for Yelp: Facebook's 3 million advertisers could help expand local advertising accounts.
- Benefit for Facebook: Yelp's extensive reviews when incorporated into Facebook's 30 million businesses with a Facebook page
could increase user base.
Priceline
- Yelp's review service and its Eat24 offering will compliment Priceline's online restaurant booking site.
- Priceline is also cash rich, with $12 billion in cash and equivalents as of the last quarter.
TripAdvisors
- Yelp's review could be handy for TripAdvisor's over 4 million restaurants worldwide. However, TripAdvisors may have to go for
a cash and stock deal, given its limited cash base.
Microsoft
- A Yelp deal could help Microsoft expand into local market leveraging, its Bing search, MSN and other consumer facing
assets.
Google
- Google may benefit from incorporation of Yelp's reviews into its search results and cross selling its offerings to the
millions of small businesses using Google products. However, the hitch is Yelp's orchestrations against Google's business
practices.
Cantor has a Buy rating and a $42 price target on the shares of the company.
At last check, Yelp shares were trading at $39.60, up 0.56 percent.
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